Procedural and declarative cognitions: Do they boost financial literacy among clients of microfinance banks in developing countries?

Abstract

Purpose

Premised on the argument that procedural and declarative cognitions help individuals to memorize, store and recall information to make informed decisions and choices in daily life, the purpose of this paper is to analyze the auxiliary psychosomatic roles of procedural and declarative cognitions in promoting financial literacy among clients of microfinance banks in developing countries.

Design/methodology/approach

The study adopted a cross-sectional research design and a semi-structured questionnaire was used to collect responses from 400 poor households’ heads located in rural Uganda. Analysis of moment structures and structural equation modeling were used to test for the auxiliary psychosomatic roles of procedural and declarative cognitions in promoting financial literacy among the poor who are clients of promotion of rural initiatives development enterprises (PRIDE) microfinance bank in rural Uganda.

Findings

The results revealed that both procedural and declarative cognitions significantly and positively boost financial literacy among the poor who are clients of PRIDE microfinance bank in rural Uganda. Jointly, both types of cognitions explain 30 per cent of the variation in financial literacy among the poor who are clients of PRIDE microfinance bank. Accordingly, the results correspond to arguments by psychologists that the human mental models help individuals to process, encode, store and retrieve information at an appropriate time such as in articulating complex financial information.

Research limitations/implications

The study focused majorly on cross-sectional research design. Thus, future studies may use longitudinal research design to explore the ability of the poor to memorize and retrieve financial information over time. Additionally, the study used only quantitative data collected using a semi-structured questionnaire. Further studies may use qualitative data collected by means of interviews. Besides, this study solely used poor households living in rural Uganda as the main source of data. Hence, future studies involving data from other section of the population may be necessary.

Practical implications

The results from this study underpins the auxiliary psychosomatic roles of procedural and declarative cognitions in promoting financial literacy among clients of microfinance banks in developing countries. Indeed, the human mental models that revolve around cognition as individuals grow are critical in helping them make informed financial decisions when they are faced with difficult financial situations. Therefore, microfinance banks and financial literacy programs in developing countries should consider the roles of procedural and declarative cognitions while designing financial literacy modules. This is because they determine how individuals receive, encode, store and retrieve financial information in order to make informed and better financial decisions before consuming financial products offered by the microfinance banks.

Originality/value

At present, there is scanty extant literature and theory that explains the auxiliary psychosomatic roles of procedural and declarative cognitions in promoting financial literacy, especially in developing countries. The current study sheds more light on the deterministic roles of procedural and declarative cognitions in boosting financial literacy.

Citation

Okello Candiya Bongomin, G. and Munene, J.C. (2019), "Procedural and declarative cognitions: Do they boost financial literacy among clients of microfinance banks in developing countries?", International Journal of Ethics and Systems, Vol. 35 No. 4, pp. 691-708. https://doi.org/10.1108/IJOES-01-2019-0026